J C Penney Company Inc (NYSE:JCP) is up more than 5% in trading today, crossing $10 for the first time this year as its second quarter earnings have renewed the market’s faith in CEO Myron Ullman’s ability to turn the company around, even if there is still plenty of work to be done. But with gross margins, and conversions both improving, bears are focusing on J C Penney’s falling foot traffic and decelerating online sales to argue that the retailer still has limited upside.

J C Penney Company JCP

Slower foot traffic could make other gains irrelevant: Elephant Analytics

“The case for J C Penney having long-term upside is predicated on getting above $14.2 billion or so in revenue,” argues Elephant Analytics on Seeking Alpha, who estimates traffic is down by about 20% since 2011. “With a 20% traffic loss, even if conversion rates and average transaction size return to historical levels, J C Penney will max out at around $13.5 billion to $14 billion in sales.”

EA points out that store traffic has continued to fall (an industry-wide issue, as he admits) and that it is now lower than it was under former CEO Ron Johnson’s tenure, an era of self-inflicted wounds that Ullman is now trying to heal. Even assuming J C Penney Company Inc (NYSE:JCP) gets gross margins and conversions up to its historical norms while continuing to improve on average transaction size, falling foot traffic could mean that it’s all for naught.

For those pointing to online sales as a way to make up the difference, EA argues that they look better than they really are because previous years’ falling numbers set up 2014 for easy comparison, and others have reached the same conclusion. He expects online sales growth to decelerate and stabilize instead of providing the additional growth that J C Penney Company Inc (NYSE:JCP) needs.

J C Penney internet sales 0814

J C Penney bull case centers on new management

All of that is true, but it also misses the main narrative that bulls are following for J C Penney Company Inc (NYSE:JCP). Their argument is that Ullman is successfully repairing gross margins while dramatically changing the product mix, and that when he turns his full attention to building up foot traffic (we’ve been told we’ll hear more specifics later in the quarter) they expect to see a similarly high level of execution. If that’s true then last quarter’s falling traffic will be seen as a lingering effect of Johnson’s tenure instead of a mark against Ullman’s leadership.